The rules, first proposed in November 2012, state that the minimum capital holding needed to trade in Sipps is £20,000 ($28,400, €25,200) and providers will be required to set aside further funds, known as a capital surcharge, depending on the volume of non-standard assets.
Around 80% of Sipps are now bought on-platform and consist of liquid ‘standard’ assets such as listed securities, gold bullion, unit trusts and ETFs while the remaining specialist Sipps are bought off-platform from specialist boutique advisers and are made up of illiquid ‘non-standard’ assets such as intellectual property and unquoted shares.
Neil MacGillivray, head of technical support at non-standard Sipps provider James Hay, told International Adviser that although his company will not be “adversely affected” by the requirements as it is “well capitalised and profitable”, other providers of these specialist Sipps may exit the market as its unlikely they will meet the new capital adequacy thresholds.
He said: “Some Sipp providers who have a large proportion of non-standard assets and therefore look unattractive to prospective purchasers may flounder.
“Some Sipp providers who have a large proportion of non-standard assets and therefore look unattractive to prospective purchasers may flounder."
“If such firms are unable to attract a buyer and also unable to meet the capital adequacy requirements, their failure will reflect badly on the Sipp industry and cause major inconvenience to their clients.”
MacGillivray described the FCA’s proposed reforms as a “blunt instrument” designed to raise standards in the Sipps industry, revealing that a number of providers have already merged with larger rivals as a result.
He said: “The new capital adequacy requirements are the FCA’s way of clearing up the market and it’s using quite a blunt instrument to raise the bar and ensure competitive services and scalable propositions.
“It was anticipated that as an outcome of this measure the number of Sipp providers would reduce and this has proven to be the case with many having been taken over by other more cash rich competitors.”
The comments reflect the findings of a recent poll commissioned by pension specialist Momentum Pensions which highlighted growing concern from advisers around preparedness for capital adequacy.
The poll, which questioned 101 financial advisers, found that nearly half of specialist retirement advisers are concerned that their non-standard Sipp providers will not be able to meet the requirements.
Stewart Davies, chief exectuive of Momentum Pensions, said: “The fact that so many advisers are worried about the ability of their Sipp provider to meet September’s capital adequacy requirements is concerning.”
Davies said the findngs may “potentially cast a shadow over the entire industry” and warned that advisers need more clarity on what constitutes a ‘non-standard’ asset.
He said:”Our research clearly shows that advisers need clarity on non-standard investments, and they need it now.
“With Sipps being increasingly seen as a vehicle for the planning of non-standard pension investments, this clarity is needed as the industry looks ahead to the introduction of the new capital adequacy rules in September.”
In August 2014, the FCA reclassified commercial property and discretionary fund management portfolios as standard assets after lobbying from Sipp providers.